United States: The Wiggin and Dana Manual on Legislative, Regulatory, and Financial Assistance Tools for Brownfields Development in Connecticut: Part III

1. Eligibility Generally

The Environmental Protection Agency offers several national grant and loan programs for the redevelopment of brownfield sites. As with CBRA, the EPA draws its definition of a brownfield site from CERCLA, 42 U.S.C. § 9601(39)(B): "...real property, the expansion, redevelopment, or reuse of which may be complicated by the presence of a hazardous substance, pollutant, or contaminant."⁴⁶ The 2002 Small Business Liability Relief and Brownfields Revitalization Act (P.L. 107-118) (Brownfields Revitalization Act) prohibits the EPA from providing funds to certain categories of sites. Ineligible properties include (1) facilities listed (or proposed for listing) on the National Priorities List (NPL)⁴⁷; (2) facilities subject to unilateral administrative orders, court orders, administrative orders on consent or judicial consent decrees issued to or entered into by parties under CERCLA; and (3) facilities that are subject to the jurisdiction, custody or control of the United States government.⁴⁸

With regard to petroleum-contaminated sites, the Brownfields Revitalization Act permits the EPA to award funds to petroleum-contaminated sites that (1) either the EPA or the appropriate state determines pose relatively low risk compared to the state's other petroleum-contaminated sites;⁴⁹ (2) have no viable responsible party and will be assessed, investigated, or cleaned up by a person that is not potentially liable for cleanup; and (3) are not subject to a Resource Conservation and Recovery Act (RCRA 42 U.S.C. §§ 6901 et seq.) 9003(h) order. The Brownfields Revitalization Act requires the EPA to make 25% of total grant funds available to petroleum-contaminated sites.

EPA funding applications are due in December each year and successful applicants usually receive written notice of their award in April of the following year. The EPA website at http://www.epa.gov/swerosps/bf/applicat. htm (last reviewed June 28, 2004) provides a "quick link" to EPA brownfield grant application information.

2. Brownfield Assessment Grants (BAGs)

The EPA awards assessment grants to inventory, characterize, assess and conduct planning and community involvement related to brownfield sites. Eligible public entities may apply for up to $200,000 to assess a site (a) contaminated by hazardous substances, pollutants, or contaminants (including hazardous substances co-mingled with petroleum) or (b) to assess a site contaminated by petroleum.⁵⁰ EPA BAGs also may fund efforts to inventory, characterize, assess and conduct planning for sites contaminated by petroleum alone.⁵¹ The EPA does not require BAG recipients to contribute to the cost of assessments.

Only state, local, and tribal governments (including general purpose units of local governments or quasi-governmental entities operating under local government control) qualify for EPA BAGs. Neither non-profit corporations nor for-profit entities may apply. Once awarded the grant, the recipient must perform the assessment within two years.

3. Brownfields Cleanup Revolving Loan Fund (RLF) Grants

Under its Brownfields Cleanup RLF grant program, the EPA distributes grants to recipients who use the funds to establish and administer revolving loan funds in their localities. From those funds recipients typically award no-interest or low interest loans to applicants to carry out cleanup activities at local brownfield sites. Recipients may also award subgrants to other eligible entities, including non-profit organizations, for cleanups on sites owned by the subgrantee. (Subgrants do not require repayment).

The EPA awards initial RLF grants in amounts of up to $1 million, but a coalition of eligible entities may apply under one application for grants of up to $1 million per entity.⁵² The EPA requires the ultimate recipients of RLF awards to contribute an additional 20% of the amount of the award towards cleanup.⁵³ A cost share may take the form of a contribution of money, labor, material or services from a non-federal source. Contributions to administrative expenses, however, do not qualify.

Only state, local and tribal governments (including general purpose units of local governments and quasi-governmental entities operating under local government control) qualify for RLF grants. Neither non-profit corporations nor for-profit entities may apply. However, coalitions of any combination of the above entities (non-profits in collaboration with municipalities and Planning Commissions, for example) may apply for RLF grants. Once awarded, the grantee must perform RLF grant activities within five years.

4. Brownfield Cleanup Grants

The EPA awards cleanup grants to provide funding for recipients to carry out cleanup activities at brownfield sites that they own. It awards grants in amounts up to $200,000 per site (for a maximum of five sites per applicant). An applicant for a cleanup grant must either own the site by fee simple title at the time of application or by September 30 of the following year.⁵⁴ The EPA requires cleanup grant recipients to contribute 20% of the overall cost of a cleanup.

Along with eligible governments and governmental entities (as described above), non-profit organizations and non-profit educational institutions may apply for EPA-funded cleanup grants. For-profit entities may not. Once awarded, the cleanup grant activity must be performed within two years.⁵⁵

5. Clean Water State Revolving Loan Funds (CWSRLF)

States may use these EPA CWSRLF funds to make loans for up to 20 years on brownfields projects where protection or remediation of water plays a role. Very few states have taken advantage of the program (New Mexico, New York, and Ohio), but all are eligible for the money. States may set their own CSWRLF project priorities within EPA guidelines and the funds loaned can cover a wide gamut of activities that include underground storage tank remediation, well capping and abandonment, and site assessments. The state may lend the money to municipalities, individuals, and non-profit organizations.

6. Threshold Criteria

Applicants for any of the EPA's grant or loan programs must first meet four threshold criteria for EPA to consider them for an award: (1) applicant eligibility; (2) community notification; (3) obtaining a letter from a State or Tribal Environmental Authority; and (4) site and property ownership eligibility. Failure to meet any one of these threshold criteria will result in denial of the application.

An applicant can meet the community notification threshold by supplying evidence that the applicant notified the community or communities where the site is located and provided sufficient opportunity for public comment. To assure meeting the community notification threshold, an applicant should (1) provide notification of the preparation and submission of a grant proposal to local newspapers and other local media; (2) hold a public meeting; and (3) make available a draft version of the proposal for public review or comment at an easily accessible location.

An applicant must also obtain a letter from the State or Tribal Environmental Authority where the site is located, acknowledging that the applicant plans to conduct or oversee assessment and/or cleanup activities and to apply for grant funds. If applying for multiple types of grant activities, an applicant may submit copies of one letter acknowledging those activities with each application.

To meet site and property ownership requirements, an applicant may not be an entity (or affiliated with an entity) that is considered potentially liable under CERCLA § 107. The process by which an applicant has acquired a site also determines its eligibility for EPA funds. Acquiring a site by means of formal foreclosure after the disposal of hazardous substances has already occurred, for example, assures a site's eligibility.⁵⁶ Properties acquired by purchase or donation prior to November 11, 2002 may not participate unless an applicant is exempt from liability under CERCLA. For properties acquired after November 11, 2002, an applicant qualifies only if he or she (1) fits the criteria for a bona fide purchaser under CERCLA (i.e., not a liable party-or affiliated with a liable party) who performed all appropriate inquiry (ASTM Phase 1 or equivalent)⁵⁷ prior to taking ownership); (2) meets continuing obligations, including complying with land use restrictions and taking reasonable steps with regard to hazardous substances;⁵⁸ (3) provides full cooperation with and access to authorities; (4) complies with CERCLA information requests; and (5) provides legally required notices.

Properties acquired by eminent domain qualify, if an applicant can meet a defense to CERCLA liability.⁵⁹ An applicant can meet a third-party defense where (1) a municipality acquired the site after the disposal took place; (2) the release and resulting damages were caused by a third party; (3) the applicant exercised due care with respect to the contamination, including taking steps to prevent continuing exposure; and (4) the applicant took precautions against the foreseeable acts of the party that caused the contamination.

In the case of RLF and cleanup grants, applicants must also meet the threshold requirement of having satisfactory cleanup authority and oversight structure, including providing information regarding the applicant's plans to enroll in a voluntary response program, acquire necessary technical expertise and secure site access. Applicants for RLF grants must also submit a legal opinion from the applicant's legal counsel, demonstrating the applicant's legal authority—based on statute, regulation, or other authority—to manage a revolving loan fund. At a minimum, the EPA requires that an RLF applicant have the legal authority to hold funds, make loans, enter into loan agreements and collect repayments.

7. Ranking Criteria

The EPA evaluates and ranks submitted applications using a point system based on certain criteria. Although similar, the ranking criteria for the EPA's three loan types do vary to some extent. Ranking criteria for site assessment grants, for example, include: (1) the proposed budget; (2) the site selection process; (3) sustainable development potential; (4) the creation and/or preservation of greenspace, open space or other nonprofit purpose; (5) the reuse of existing infrastructure; (6) community involvement; (7) the reduction of threats to human health and the environment; (8) the leveraging of additional resources (i.e. other sources of funding or funds committed by the applicant); and (9) the ability to manage grants.

Ranking criteria for RLF grants consist of: (1) the proposed budget; (2) community need; (3) the description of a target market for loans and subgrants; (4) sustainable development potential; (5) the creation and/or preservation of greenspace, open space or other nonprofit purpose; (6) the reuse of existing infrastructure; (7) community involvement; (8) the reduction of threats to human health and the environment; (9) leveraging additional resources; and (10) the ability to manage grants and the proposed management structure of the loan fund. The EPA expects RLF applicants who do not identify specific borrowers to provide a description of target markets, including the types of borrowers, subgrantees and sites to which it will direct funds.⁶⁰ EPA also requires the RLF applicants to submit a Business Plan, describing the applicant's marketing strategy, its readiness to set up operations, and specific information regarding potential rates, terms and types of projects.

Ranking criteria for cleanup grants include: (1) the proposed budget; (2) community need; (3) sustainable development potential; (4) the creation and/or preservation of greenspace or other nonprofit purpose; (5) the reuse of existing infrastructure; (6) community involvement; (7) the reduction of threats to human health and the environment; (8) the leveraging of additional resources; and (9) the ability to manage grants.

1. Brownfields Economic Development Initiative (BEDI)

HUD administers the BEDI grant program to stimulate and promote economic and community development activities under § 108(q) of the Housing and Community Development Act of 1974, 42 U.S.C. § 5308, as amended (Housing and Community Development Act). HUD grants BEDI awards of up to $2 million once a year on a competitive basis. BEDI funds may be used to improve the economic viability of a brownfields project, but are available only for projects financed with Section 108 loan guarantees.

Section 108 is the loan guarantee provision of the Community Development Block Grant (CDBG) program.⁶¹ Section 108 provides eligible public entities with a source of financing for economic development, housing rehabilitation, public facilities and large-scale physical development projects. Recipients may use Section 108 funds for such activities as site clearance, property acquisition, infrastructure development, and related activities, including removal of contamination. To be eligible for the Section 108 program, a proposed project must principally benefit low- and moderate-income persons, aid in the elimination or prevention of slums and blight, or meet a community's urgent needs. The Section 108 program allows recipients to transform a small portion of their CDBG funds into federally guaranteed loans. To secure such loans, the public entity applicant (the state in the case of non-entitlement public entities)⁶² must pledge current and future CDBG funds as security. HUD often also requires additional loan security on a case-by-case basis, including the assets financed by the guaranteed loan. Section 108 funds are available throughout the year on a non-competitive basis. The maximum term for a Section 108 loan is twenty years and the minimum BEDI grant to Section 108 loan ratio is 1:1 (i.e. no grant smaller than the amount of the Section 108 loan). HUD endeavors to structure loans in accordance with the needs of the project and borrower.

Only public entities that already receive CDBG funding are eligible to apply for BEDI grants, but recipients may re-lend Section 108 proceeds and provide BEDI funds to private entities to carry out approved brownfield projects. (BEDI grants may not, however, provide funding to public or private entities to remediate conditions caused by their own actions.) BEDI funds may not be used at sites listed on the EPA's National Priority List.

BEDI grants, coupled with Section 108 loan guarantees, may be used for a variety of purposes, including writing down land, site remediation, funding reserves, over-collateralizing a Section 108 loan, enhancing the security of a Section 108 loan, or providing financing to for-profit entities at below market rates. HUD considers applications for BEDI awards based on certain rating factors, including (1) applicant (and sub-applicant) capacity and relevant organizational experience; (2) the extent of the existing problem; (3) the soundness of the applicant's approach; (4) leveraging of resources/ financial need; (5) the comprehensiveness of the project, including coordination with other local groups and organizations.

2. Economic Development Initiative (EDI) Grants

EDI grants are also authorized under Section 108(q) of the Housing and Community Development Act. Like BEDI grants, EDI grants are awarded annually on a competitive basis to public entities in conjunction with Section 108 loan guarantees. Eligible activities include: (1) property acquisition; (2) the rehabilitation of publicly- owned property; (3) housing rehabilitation; (4) economic development; (5) the acquisition, construction; reconstruction or installation of public facilities; and (6) public works and other site improvements. Within this context, EDI funds may be used in the redevelopment of brownfield sites. Applicants may utilize EDI funds to pay project costs, to reduce interest rates on revolving loan fund loans, to establish a loan loss reserve, and to provide additional security for a Section 108 loan.

Regrettably, HUD has not received Congressional funding for competitive EDI grants in 2004. HUD does have a funded program in its non-competitive EDI program. Funds for noncompetitive EDI grants are allocated by Congressional action based on the recommendation of a Congressional delegation.

3. Community Development Block Grant (CDBG) Program

Successful applicants may use Community Development Block Grants, administered by HUD's Office of Community Planning, for brownfield redevelopment activities that meet one of the program's national objectives of benefiting low and moderate income persons, preventing or eliminating slums and blight, or addressing conditions that present a serious and immediate threat to community health and safety. HUD awards CDBG grants directly to Entitlement Communities or to state entities for distribution to nonentitlement communities. To receive CDBG funds, a brownfield redevelopment activity must be incorporated into a local government's stated priorities through its CDBG Consolidated Plan and annual action plan.

In Connecticut, entitlement communities include Bridgeport, Bristol, Danbury, Hartford, Meriden, Middletown, New Britain, New Haven, New London, Norwalk, Norwich, Stamford, Waterbury, West Haven, East Hartford, Fairfield, Greenwich, Hamden, Manchester, Milford, Stratford and West Hartford. Those interested in applying for CDBG funds for sites in entitlement communities should contact those municipalities directly. For sites outside entitlement communities, prospective grantees must contact the Office of Municipal Development at the Connecticut Department of Economic and Community Development.

EDA has as its purpose the creation and retention of jobs and the stimulus of industrial and commercial growth in economically distressed areas. The agency provides grants for infrastructure development, local capacity building, and business development to help communities alleviate conditions of substantial and persistent unemployment as well as underemployment in economically distressed areas and regions. Thus, EDA grant eligibility criteria include consideration of the unemployment rate in the applicant's area. EDA grants, which are highly competitive, are available to state and local governments, Indian tribes, and to public and private non-profit organizations. EDA investments include locally developed public works infrastructure projects that support private sector businesses. Grant recipients may use grant funds for major construction projects, such as water and sewer lines and public facilities that encourage private investment. Recipients may also use grant funds for site assessment and remediation, provided such costs do not account to more than 10% of the total project budget (with the exception of housing).

The vast majority of EDA funds go to small towns and rural areas who have used the funds for a wide variety of purposes pertinent to brownfields development. These have included addressing issues related to leaking underground storage tanks, asbestos, PCBs, and lead based paint, as well as reuse/rehabilitation of old factory buildings. Grants average about $900,000.

[Please see Table of Connecticut and Federal Financial Assistance Programs for Brownfield Assessment, Remediation, and Development, following the Postscript below.]

The issues discussed in this Manual directly effect current owners, potential purchasers and lessors, developers, lending institutions, local governmental units or industrial authorities, and other entities interested in improving property or otherwise enhancing its value or reducing exposures arising from its environmental condition. These entities should expect their lawyers to provide them with representation and advice with regard to actual and potential liability, remediation, reuse, financing, sale, lease, donation, and strategic stockpiling of brownfield properties.

In addition to providing their clients with counsel on assessment of liability, the lawyers for the interested parties should offer representation in the following areas:

• negotiating cleanup obligations commensurate with land use and property value,
• negotiating liability limitations between and among buyer/seller, lessor/lessee, lender/borrower, and owner-developer/ builder-engineer,
• negotiating title acquisition,
• preparing appropriate construction documentation mindful of the environmental issues,
• acquiring liability limitation insurance,
• meeting various land use requirements, such as zoning, wetlands, and "entitlement" issues,
• preparing appropriate land use controls (such as deed restrictions and mandatory maintenance and operation requirements to assure the continuing viability of remedial schemes),
• attending to the special requirements of lending institutions and local authorities, and
• providing advice on funding of brownfields cleanup and development through creative financing including loans, grants, bonds, and tax increment financing.

At any one or more times during the assessment, remediation, transfer, and development of a brownfield property, as well as with regard to any transaction involving such a property, an interested party may require legal services in the following areas: • environmental law, • real estate,

• land use
• project finance,
• construction law,
• insurance,
• government contract law,
• governmental relations,
• commercial or corporate law, and
• international or trans-national law.

When searching for an attorney to provide counsel in any such role, the interested party should inquire about the lawyer's specific brownfields experience. Practical real-life examples in any particular context may give some lawyers an edge over others, e.g., having obtained a release for or covenant not to sue a client from a regulatory agency, having successfully negotiated an indemnity provision in the purchase or lease of a brownfield property, or having developed a workable financing mechanism for development of such a property.

In conclusion, lawyers can serve a pivotal role in helping to develop the economic potential in brownfield properties. Parties interested in the remediation, use, and development of these properties should keep in mind how their attorneys can best serve them in this complex and challenging field.

Footnotes